China begins tweaking the price of electricity

(September 22, 2009) The Chinese government is playing economic games with the country’s electricity rates, announcing recently that it is planning to raise hydropower prices. According to Zhang Guobao, the new hydropower electricity prices will be raised in order to “subsidize” residents who were forced off their land to make way for the projects.

Electricity purchased from hydropower plants is currently cheaper than that bought from coal-fired plants—0.2 yuan (3 U.S. cents) to 0.3 yuan per kilowatt-hour and 0.4 yuan to 0.5 yuan per kilowatt-hour respectively. The price for electricity is set by the commission and is based on operating costs and a “reasonable profit margin.” Why the government is pricing hydropower and coal fired electricity—when they have different operating and development costs—remains a mystery however.

And calling the new rates a “subsidy” to those residents who were forced to relocate is very misleading, says Patricia Adams, Probe International’s Executive Director.

“Resettlement costs must be internalized by hydrodam developers so that their cost-benefit calculations for dams reflect reality,” she said. A “subsidy” implies assistance or charity. “The government isn’t doing dam evacuees any favours by ‘subsidizing’ them for having destroyed their homes and businesses. The government has a duty to compensate them at a level determined by the evacuee,” she added.

Zhang also admitted that the costs of relocation have become a major detriment to the development of new hydropower projects.

“Currently, compensation for relocated residents has become the biggest obstacle to the development of hydropower plants in China,” Zhang said at a forum on the sustainable development of hydropower.

At the end of last year, the china Electricity Council said the country’s hydropower plants generated 563.3 billion kilowatt-hours—accounting for 16.4 percent of the country’s total electricity output last year. Coal continues to provide the bulk of China’s electricity production, accounting for around 70 percent of its total primary energy consumption, according to the Energy Information Association.